Retailers may cut prices to spur demand

Retailers may cut prices to spur sagging demand and clear the mounting inventories, keeping in line with the government directive to deal with the demand- supply mismatch.

The present slowdown should not last more than six months. Value retail is already back on track. Retailers may reduce prices in the next few months in an effort to make people buy more," Retailers Association of India CEO Gibson Vedamani told PTI.

Discounts and bundled-offers on Diwali and Christmas had been offered by retailers to

spruce up demand, he said. I expect third quarter (or Q3, which ends today) performance of retail sector to be hit on an average, without any significant growth as compared to last year." "As of January, they are limiting inventories because it is critical in maintaining gross margins." Vedamani said mid-segment consumption, which is the key to India's economic growth, is steady and there is nothing to worry about. Consumer sentiment began wheeling toward normalcy the moment the government cut petrol prices.

Appreciating steps taken by the government have helped bring down inflation and interest rates, he said, "Liquidity position is much better now than it was till a week back. Companies in the retail sector have been working better now with the secured loans that banks have been forthcoming with."

Future Group founder Kishore Biyani had earlier this month stressed on cost-effectiveness of partnership between retailers and real estate players by way of revenue-sharing.

In a revenue-sharing rental model, Retailers share a percentage of their sales with real estate players thereby reducing risks. There is a certain minimum outgo on the rental borne by the retailer from his topline.

"Nobody will be able to work in this scenario without the revenue-sharing format. It is a win-win situation, practised across the world as it brings down the closure rate for Retailers," Vedamani said.

The model allows the retailer and the real estate entity to enjoy footfalls, while making the most of falling rentals like in the present situation.
Retailers are looking at enhancing operating efficiencies, he said when asked whether the industry has deliberated on bringing down inventories.